Collective investment vehicles comprise any entity that allows investors to pool their money and invest the pooled funds, rather than buying securities directly. A variety of examples of collective investment vehicles will be described in the detailed description of the embodiments. For convenience, examples of some embodiments of the invention will be described in the context of exchange traded funds, but the type of collective investment vehicle is not limiting on the invention. The invention will be described in relation to “market participants” (“MP's”). An MP is any person or entity that wants to create or redeem shares in the collective investment vehicle. One non-limiting example of an MP is an authorized participant, to be discussed below in relation to exchange traded funds.
Exchange Traded Funds, or ETFs, are a type of collective investment vehicle that owns a portfolio of securities and issues shares that are traded on a stock exchange or other organized market. Shares of an ETF are created by authorized participants (AP) who either deliver cash, a portfolio of securities, or a combination of cash and securities to the ETF, and receive ETF shares in return. ETF shares may also be redeemed by APs by delivering ETF shares and receiving cash, securities or a combination thereof. An AP may create or redeem ETF shares. Typically, other investors buy or sell ETF shares in an organized market.
All ETFs must be approved for issuance by the Securities and Exchange Commission (SEC).
In order to approve an ETF for issuance, the SEC has required that the market trading the ETF disseminate an indicative value of the ETF shares every 15 seconds during trading hours.